Rethinking your business for the circular economy

Despite the virtues of the global economy, production has now outstripped planetary boundaries and the environment is now contending with mass-scale pollution. The Pacific trash vortex, a gyre of plastic debris the size of Texas in the central North Pacific Ocean, suggests that things aren’t too symbiotic between humans and nature

Meanwhile, decades of effort focused on sustainability and corporate responsibility initiatives have struggled to make a difference. “Companies can’t be sustainable in an unsustainable society,” argues a recommended blog post on GreenBiz: A gold standard for truly sustainable enterprises.

One area that could have a significant impact on our sustainability is how we think about “goods” and what constitutes a modern supply chain. Today’s supply chains are linear: they consume materials, move products from manufacturing, distribution and selling, and then most often products are discarded after a while and land in the trash.

There’s growing consensus that the only way forward with sustainable production and growth is to switch from our current industrial “linear” model to a circular economy, which is: “For a product, the onus is on the manufacturer who needs to take care of the resources used in its products, so it keeps the metals, plastics, etc. in use within the product cycle for as long as possible and thinks about design for longevity, repair and re-use,” says CEO of Wrap, Liz Goodwin in a Guardian article.

McKinsey, Ellen MacArthur Foundation, and other large companies like Accenture and Philips support the circular economy. Companies on the forefront of this wave can create new product-to-service approaches, new materials recovery methods, and smarter projections and preparedness for future costs, such as waste disposal or raw materials prices. While it may take years or decades before the ultimate vision of the circular economy to take hold. the transition has begun..

The Sharing Economy

The sharing economy is made up of hundreds of compelling new businesses, including Uber, AirBnB, Lyft, and Kickstarter, which are transforming how goods and services are concepted, created, procured, and sold – in fact, changing the whole distribution model.

The trio of Internet ubiquity, cloud computing, and mobile broadband makes the sharing economy possible. Similarly, content subscription services like Netflix and Spotify are displacing many physical goods with on-demand digitized alternatives. And software-as-a-service (SaaS) models allow companies to forgo owning IT infrastructure, ultimately reducing the footprint of their hardware and electricity use.

In recent years, major manufacturing companies like Rolls Royce and Caterpillar have started the transition from manufacturing to managed services, taking care of product life cycles end-to-end. Today, you don’t buy a Rolls Royce jet engine: you lease it and the British manufacturer will manage the process end to end, installing, servicing, monitoring in the air, replacing and recycling parts, and ultimately delivering a service, not just a product. Again, we see these trends having a net positive impact on the environment.

The Circular Supply Chain

While this trend is a good start, it’s putting great demands on the modern supply chain.

Leaders have to rethink their supply chain economy as a network, not as a collection of single companies. The interdependence between companies is going to be suddenly much higher, which means they have to better choreograph the movement between materials and goods.

Below are considerations for anyone interested in creating a circular supply chain:

1. Outputs become inputs because your goods don’t end their life with their customers, but become an input in your supply chain. This means your accounts payable and accounts receivable processes will form a loop instead of a straight line.
2. Without a digital supply chain, it will be almost impossible to coordinate all the moving parts a circular supply chain requires in real time.
3. Assess your suppliers and work with the top tier for a common vision and goals towards a circular supply chain. Trace your supply chain to the bottom to ensure your CSR standards are met as you assess reuse opportunities. Drop those that are not in compliance with social and environmental mandates.    
4. Figure out the cash flow demands of a circular supply chain, compared to a linear one. Your margins might improve, but your suppliers’ need for cash may change, so having active cash management in place is mandatory.
5. Make a plan to manage the soft components like all the evidence, materials, production information and components for the entire lifecycle.

Pioneers all over the world are showing that not only is the idea of a circular economy sustainable, it’s great business. Given the changing consumer, business, and government attitudes toward consumption and the environment, the circular economy looks poised to make businesses operate smarter and more collaboratively – while discovering new sources of profit and a competitive advantage by re-designing supply chains.